Step 1: Idea Formulation
This is the heart of our investment process. Typically, the Ashcroft Cohen Strategic Capital (ACSC Inc.) research team in Beijing participates in dozens of management forums each year. A mixture of one-on-one management forums and attending international trade conferences enables us to have a better global perspective and discover more new and exciting investment opportunities.
Established quantitative models are utilised to unearth undervalued businesses. Some of the statistics reviewed in this process include: Price-to-Earnings Growth, Price-to-Cash Flow, Earnings Yield and Estimate Revisions and Price-to-Book Value.
Market sentiment, feelings and emotions can have a significant impact on share values over a short period. This situation can lead to times when shares are trading at considerably less than their intrinsic value, bringing about excellent investment opportunities.
Step 2: Extensive Underlying Research
Our investment approach focuses on buying stocks that are trading at a price below their true value, where we believe an impetus in the business itself (such as an imminent takeover or groundbreaking new technology) or the market (such as loosening regulation or opening up of new territories) has the ability to boost the value of its stock. We usually look at international companies with market valuations more than $1 Billion. Typically, around two-thirds of the share portfolio will be allocated to Dividend Growth Stocks. Dividend Growth Stocks are companies that issue dividends and have a history of increasing their dividend per share over the previous five years.
Step 3: Portfolio Selection and Risk Management
Attitudes towards asset allocation are formed by studying macroeconomic conditions together with bottom-up stock selection in order to construct a well-balanced portfolio of high-conviction holdings. We address portfolio risk by:
- A pre-emptive sell approach and profit-taking based on individual share values, and selling if the investment proposition or stimulus for investment returns changes to negative.
- An acknowledgement that at certain times, liquid cash is the right investment and we manage portfolio cash levels accordingly.
- Carefully adding alternative investments to minimise volatility and increase returns.